IMF urges India to curb inflation

The International Monetary Fund (IMF) on Thursday urged India to raise its interest rates and consolidate fiscal position to rein in the stubbornly high inflation. India's growth has slowed markedly, reflecting global developments and domestic supply constraints, while its inflation remains high, the IMF said in a statement. "Given entrenched double-digit inflation expectations, (IMF) directors recommended that the authorities maintain the monetary policy stance appropriately tight, and stand ready to raise the policy rate further so as to bring down inflation to more sustainable levels," according to the statement. India's economy grew only 4.5 percent last year, after years of economic growth rate averaging 8 percent. The IMF also emphasized the need for a comprehensive package of measures, comprising both tax and subsidy reforms, to ensure the quality and sustainability of fiscal consolidation. It suggested that India should take broader structural reforms to improve infrastructure, the business climate, and the pricing and allocation of natural resources. It predicted that India's growth will reach 4.6 percent for the fiscal year of 2013-2014, and should pick up to 5.4 percent a year later. However, fiscal restraint and a tighter monetary stance will act as headwind, and inflation is expected to remain near double-digits well into next year, driven by high food inflation that feeds quickly into wages and core inflation. The International Monetary Fund (IMF) on Thursday urged India to raise its interest rates and consolidate fiscal position to rein in the stubbornly high inflation. India's growth has slowed markedly, reflecting global developments and domestic supply constraints, while its inflation remains high, the IMF said in a statement. "Given entrenched double-digit inflation expectations, (IMF) directors recommended that the authorities maintain the monetary policy stance appropriately tight, and stand ready to raise the policy rate further so as to bring down inflation to more sustainable levels," according to the statement. India's economy grew only 4.5 percent last year, after years of economic growth rate averaging 8 percent. The IMF also emphasized the need for a comprehensive package of measures, comprising both tax and subsidy reforms, to ensure the quality and sustainability of fiscal consolidation. It suggested that India should take broader structural reforms to improve infrastructure, the business climate, and the pricing and allocation of natural resources. It predicted that India's growth will reach 4.6 percent for the fiscal year of 2013-2014, and should pick up to 5.4 percent a year later. However, fiscal restraint and a tighter monetary stance will act as headwind, and inflation is expected to remain near double-digits well into next year, driven by high food inflation that feeds quickly into wages and core inflation.